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Dollars and Sense

Understanding Your Mortgage Options

Writer / Christy Heitger-Ewing
Photography Provided

Ruoff MortgageIf you’re interested in tapping into the equity in your home, the first thing you should do is reach out to a trusted lender who can explain your options. Though there are differences between refinancing and a home equity line of credit (HELOC) according to Dirk Webster, senior loan officer at Ruoff Mortgage, both options are considered mortgage loans.

“Both loan products are liens on your home,” Webster says. “HELOCs have a lot of similar characteristics of credit cards. As you pay down the balance, you can reuse the HELOC up to your available credit, but because HELOCs are secured by your home, the interest rate is much better than a typical credit card. With a cash-out refinance, you end up with one fixed-rate loan and receive a one-time lump sum of cash, whereas with a HELOC, your original mortgage stays in place and you now have an additional, variable-rate loan that you can access for cash multiple times in the future.”

The first thing Webster does when a client calls him is assess their needs. What do they want the money for? Is it for a large one-time need, or something they will need repeatedly over time? The one-time need is going to be geared toward a cash-out refinance, whereas if they are going to continuously want to have it in place for future needs, a HELOC might be the better option. Say, for example, a couple wants to tap into equity to pay off their children’s $40,000 student loans.

“That’s a larger amount so it makes sense to go ahead and lock that in, especially with today’s low interest rates, to make it fixed,” Webster says. “If a client needs a larger amount, I explain that a fixed-rate, cash-out refinance is probably their best option as it will never change on them.”

However, if someone needs $5,000 for a new furnace unit, they may want to consider a HELOC and not be too concerned about the adjustable rate, because it’s a relatively small loan amount. Another factor to consider is cost. If you opt for a cash-out refinance traditional mortgage, you’re going to have typical closing costs, whereas with a home equity loan, there are nominal closing costs, if any.

Generally speaking, Webster usually hears from customers who are seeking a larger sum of money because they are either wanting to do a debt consolidation or a home improvement project. If someone mentions that they are seeking a smaller amount, say $10,000 or less, Webster is up front about the cost of obtaining such an amount, and that it might be best for them to consider a HELOC.

“When it comes to purchasing a home, one of the biggest obstacles for homebuyers, particularly first-time homebuyers, is lack of down payment,” Webster says. “A lot of people think they have to have a down payment saved up, and that’s not always the case. We have a down payment assistance product where qualified borrowers can essentially have their down payment made for them by the Indiana Housing & Community Development Authority. We work closely with realtors and have them structure the purchase contract to minimize the out-of-pocket funds needed by the borrower for closing. Often these borrowers get into the home with little or nothing out of their own pocket. It’s pretty sweet.”

In addition to conventional and Federal Housing Administration mortgage loans, Ruoff Mortgage also offers Veterans Affairs (VA) and United States Department of Agriculture (USDA) financing.

“We’re always excited to help our veterans with a VA loan, and USDA offers 100% financing for homes located in rural areas,” Webster notes.

Contact Dirk Webster at his office (765-450-7572), on his mobile (765-271-1918) or by visiting dirkwebster.com.

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